|
x
|
Preliminary
proxy statement
|
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¨
|
Confidential,
For Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
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¨
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Definitive
proxy statement
|
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¨
|
Definitive
additional materials
|
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¨
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Soliciting
material pursuant to Section
240.14a-12
|
|
Citizens
Financial Corporation
|
||
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(Name
of Registrant as Specified in Its Charter)
|
||
|
Citizens
Financial Corporation
|
||
|
(Name
of Person(s) Filing Proxy Statement)
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¨
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Fee
computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
|
|
|
(1)
|
Title
of each class of securities to which transaction
applies:
|
|
|
(2)
|
Aggregate
number of securities to which transactions
applies:
|
|
|
1.
|
To
approve a going private transaction by means of a reverse stock
split
(“Reverse Stock Split”) in which the Company’s Articles of Incorporation
are amended such that all outstanding shares of the Company’s currently
outstanding no par value Class A common stock (“Common Stock”) are
reconstituted on the basis of one (1) new share of no par value
common
stock (“New Common Stock”) for each currently outstanding two hundred and
fifty (250) shares of Common Stock, with cash in the amount of
$7.25 per
share of Common Stock being paid in lieu of any fractional shares
of New
Common Stock. Once approved by the shareholders, the Reverse
Stock Split will be effective on or about [effective
date].
|
|
|
2.
|
To
transact any other business as may properly come before the Special
Meeting or any adjournments or postponements of the Special
Meeting. The Board of directors is not aware of any other
business to be conducted at the Special
Meeting.
|
|
|
·
|
The
reverse stock split. The Board of Directors of
Citizens Financial Corporation (the “Company”), a Kentucky corporation,
has reviewed and unanimously recommended and authorized an amendment
to
the Company’s Articles of Incorporation to effect a reverse stock split
(“Reverse Stock Split”) whereby all outstanding shares of the Company’s
currently outstanding no par value Class A common stock (“Common Stock”)
shall be reconstituted on the basis of one (1) new share of no
par value
common stock (“New Common Stock”) for each currently outstanding two
hundred and fifty (250) shares of Common Stock, with cash being
paid in
lieu of any resulting shares of New Common Stock as described immediately
below. See “TERMS OF THE TRANSACTION - Amendment to Articles of
Incorporation.”
|
|
|
·
|
Fractional
shares. No certificates for fractional shares of New
Common Stock will be issued. Instead, holders of fractional
shares will be paid $7.25 per share of Common Stock that becomes
a
fractional share as a result of the Reverse Stock
Split. Shareholders who own fewer than 250 shares of Common
Stock immediately prior to the Reverse Stock Split will no longer
be
shareholders of the Company. However, if a shareholder would
prefer not to receive cash in lieu of fractional shares but would
instead
prefer to receive only New Common Stock, such a shareholder can,
prior to
[effective date] (the “Effective Date”), purchase through the market, to
the extent available, such additional shares of Common Stock to
make his
or her holdings of Common Stock evenly divisible by 250 (and thereby
not
having a fractional share as a result of the Reverse Stock
Split). See “TERMS OF THE TRANSACTION - Fractional
Shares.”
|
|
|
·
|
What
you will receive. Holders of Common Stock will receive
one share of New Common Stock in exchange for every 250 shares
of Common
Stock they own of record and cash in lieu of any resulting fractional
shares as described above. See “TERMS OF THE TRANSACTION -
Amendment to Articles of
Incorporation.”
|
|
|
·
|
Purpose. The
principal reason for the Reverse Stock Split is to bring the Company’s
number of record holders of Common Stock below 300 so that the
Company
will no longer have the expense of filing reports with the Securities
and
Exchange Commission (“SEC”). A second purpose is to provide
shareholders owning fewer than 250 shares of Common Stock the opportunity
to dispose of their stock easily and without having to pay brokerage
commissions. Additionally, the Company will save the administrative
expenses associated with maintaining and servicing a large base
of
shareholders who own relatively small numbers of shares. See
“SPECIAL FACTORS - Purposes of the Reverse Stock
Split.”
|
|
|
·
|
Going
private. The principal reason for effecting the
Reverse Stock Split is to bring the number of holders of record
of Common
Stock below 300 so that the Company will no longer have the expense
of
filing reports with the SEC. Immediately following the
Company’s certification to the SEC that it has fewer than 300 common
shareholders of record, the Company’s obligations to file annual,
quarterly, and current reports with the SEC will be
suspended. Its proxy and insider filing and other SEC reporting
obligations will terminate 90 days thereafter. As a result,
there will be less information publicly available to the Company’s
remaining shareholders, the public, and to market makers, and this
could
adversely affect the trading market and market value for the remaining
shares. See “SPECIAL FACTORS - Effects of the Reverse Stock
Split.”
|
|
|
·
|
Expected
effect of the reverse stock split on selected per share financial
performance. As of June 29, 2007, there were
1,586,111 shares of Common Stock outstanding. Following the
Reverse Stock Split, it is anticipated that there will be approximately
5,663 shares of New Common Stock outstanding. As a result,
certain per share metrics of financial performance will
change. See “OTHER INFORMATION – Financial
Information.”
|
|
|
·
|
Why
a reverse stock split and why now. The Board of
Directors considered alternatives to structuring the transaction
as a
reverse stock split, but decided that the reverse stock split format
will
ensure that the number of record shareholders of the Company will
be fewer
than 300 following the transaction and is designed to accomplish
this
objective with transaction-related expenses that are reasonable
relative
to the size of the transaction and the anticipated savings. A
major factor in the Board of Directors’ decision to effect the Reverse
Stock Split at this time was the rapidly growing expense of maintaining
the registration of the Company’s common stock under the Exchange
Act. See “SPECIAL FACTORS - Reasons for the Reverse Stock
Split” and “SPECIAL FACTORS - Alternatives
Considered.”
|
|
|
·
|
Fairness
of the transaction. The Board of Directors believes
that the Reverse Stock Split is fair to the Company’s unaffiliated
shareholders, including both those who will receive cash in lieu
of
fractional shares and those who will receive New Common
Stock. The Board of Directors considers the Reverse Stock Spit
fair to the unaffiliated shareholders who will remain shareholders
following the Reverse Stock Split because the Board of Directors
views the
savings expected to result from termination of registration under
the
Exchange Act and from the reduction in the number of shareholders
as more
than offsetting the loss of eligibility for listing on the Nasdaq
Capital
Market, the reduction in the amount of publicly-available financial
information, and any other benefits of having stock registered
under the
Exchange Act. In setting the price to be paid for fractional
shares, the Board of Directors gave great weight to the opinion
letter
(“Fairness Opinion”) provided by Burke Capital Group (“Burke”), an
independent financial advisor, that such price was fair, from a
financial
point of view, to the unaffiliated shareholders who will be cashed-out
as
a result of the Reverse Stock Split as well as to the unaffiliated
shareholders who will not be cashed-out as a result of the Reverse
Stock
Split. The Board of Directors noted that the price set by the
Board of Directors, $7.25 per share, is an 11% premium over the
closing
bid price of the Common Stock on the trading day immediately preceding
the
date on which the Board of Directors selected the price. The
Board of Directors considered but rejected various other potential
measures of value. See “SPECIAL FACTORS - Fairness of the
Transaction.”
|
|
|
·
|
Fairness
of the process. The Board of Directors obtained the
Fairness Opinion from Burke in advance of its final decisions regarding
the Reverse Stock Split. The Board of Directors did not retain
a representative or advisor on behalf of the unaffiliated shareholders
to
review or negotiate the transaction. The Board of Directors
concluded that the expense of such a step was not reasonable in
relation
to the size of the transaction being contemplated and concluded
it could
adequately establish the fairness of the Reverse Stock Split without
such
a step. The Reverse Stock Split also was not structured so that
approval of at least a majority of the unaffiliated shareholders
is
required. The Board of Directors did not form a special
committee of independent directors to review and approve the terms
of the
Reverse Stock Split. With respect to all of the above, the
Board of Directors concluded that there was sufficient independent
representation in the decision-making at the Board of Directors
level to
protect the interests of the unaffiliated shareholders. This
decision was based on the fact that three of the five members of
the Board
of Directors are not controlled by, or under common control with,
the
Company, and these members of the Board of Directors are not employees
of
the Company. See “SPECIAL FACTORS - Fairness of the
Transaction.”
|
|
·
|
Vote
required and reservation of rights. Under Kentucky law
and the Company’s Articles of Incorporation and Bylaws, the amendment to
the Articles of Incorporation to accomplish the Reverse Stock
Split
requires the affirmative vote of a majority of the votes cast
by all
holders of Common Stock. The Company’s President and Chief
Executive Officer, Darrell R. Wells (“Mr. Wells”), beneficially owns
approximately 62% of the outstanding Common Stock, and the Company’s
executive officers and directors as a group beneficially own
approximately
64.5% of the outstanding shares. Mr. Wells and the other
directors and executive officers of the Company have indicated
that they
intend to vote “FOR” the Reverse Stock Split. Assuming that
they vote as they have indicated that they will, approval of
the Reverse
Stock Split is assured. See “COMPANY INFORMATION – Interest in
Securities of the Company” and “TERMS OF THE TRANSACTION – Vote
Required.”
|
|
|
·
|
Effective
date. Assuming shareholder approval is received, the
Company anticipates that the Reverse Stock Split will be effective
on
[effective date]. See “TERMS OF THE TRANSACTION - Amendment to
Articles of Incorporation.”
|
|
|
·
|
Post-Split
Exchanges and Transfers. All certificates
representing issued and outstanding shares of Common Stock immediately
prior to the Reverse Stock Split will be cancelled and must be
returned to
the Company. A letter of transmittal describing how to collect
any cash to be paid in lieu of fractional shares and receive certificates
for shares of New Common Stock is being mailed to shareholders
in
conjunction with the mailing of this Proxy Statement. Transfers
of New Common Stock will not be permitted until a shareholder’s old
certificates have been properly surrendered. See “TERMS OF THE
TRANSACTION – Post-Split Exchanges and
Transfers.”
|
|
|
·
|
Source
of funds. The Company estimates that approximately
$1,234,900 will be required to purchase fractional shares resulting
from
the Reverse Stock Split. The Company also estimates that
expenses connected with the Reverse Stock Split will total approximately
$90,000. The Company plans to borrow the funds related to the
Reverse Stock Split from Mr. Wells. The amounts borrowed will
expand an existing loan agreement between the Company and Mr.
Wells. The outstanding principal under that loan agreement is
callable upon 90 days notice and is otherwise due on June 30,
2008. Interest is payable quarterly at an annual rate equal to
the greater of 6% or the prime lending rate plus 1%. The
Company anticipates making payments on the loan, as to both debt
incurred
in connection with the Reverse Stock Split and the existing balance
of the
loan prior to the Reverse Stock Split, from savings generated from
the
Reverse Stock Split. The Company anticipates that Mr. Wells
will extend the maturity of the loan each year until the loan is
repaid,
although such extensions are not guaranteed. The Company has
not arranged an alternative source for financing the Reverse Stock
Split
in the event Mr. Wells fails to loan the Company the funds as
indicated. See “COMPANY INFORMATION – Interests of Certain
Parties in the Reverse Stock Split” and “OTHER INFORMATION – Source and
Amount of Funds.”
|
|
|
·
|
Tax
consequences. The issuance of the New Common Stock in
exchange for the Common Stock will be treated as a tax-free
recapitalization for federal income tax purposes. Accordingly,
the exchange of
|
|
|
shares
will not result in the recognition of gain or loss to a shareholder,
and
the adjusted tax basis of a shareholder in and holding period for
the
stock will not change. Shareholders who receive cash in lieu of
fractional shares will recognize a capital gain or loss to the
extent of
the difference between the shareholder’s tax basis in such shares and the
amount of cash received in exchange therefor. See “SPECIAL
FACTORS - Federal Income Tax
Consequences.”
|
|
|
·
|
Dissenters’
rights. A shareholder who will receive cash in lieu of
fractional shares upon implementation of the Reverse Stock Split
has the
right under Kentucky law to demand the appraised value of such
shareholder's shares of Common Stock if the shareholder votes against
the
Reverse Stock Split and complies with certain other procedural
matters. See “OTHER INFORMATION – Dissenters’ Rights,” and
Appendix B to this Proxy Statement.
|
|
Estimated
Annual Savings
|
|||
|
Audit
fees (including annual SOX Section 404 opinion)
|
$300,000
|
||
|
Legal
fees
|
60,000
|
||
|
Shareholder
communications (printing, mailing, etc.)
|
16,000
|
||
|
Nasdaq
listing fee and stock transfer costs
|
37,000
|
||
|
Director
and officer insurance and fees
|
74,000
|
||
|
Internal
personnel expense (time savings)
|
65,000
|
||
|
Total
|
$552,000
|
||
|
Estimated
One-Time Savings
|
|||
|
SOX
consulting
|
$132,000
|
||
|
Internal
personnel expense (time savings)
|
40,000
|
||
|
Total
|
$172,000
|
|
Quarter
Ended
|
High
Bid
|
Low
Bid
|
||||
|
June
30, 2007
|
$6.59
|
$5.65
|
||||
|
March
31, 2007
|
6.60
|
5.78
|
||||
|
December
31, 2006
|
6.84
|
4.20
|
||||
|
September
30, 2006
|
6.58
|
4.56
|
||||
|
June
30, 2006
|
8.07
|
5.81
|
||||
|
March
31, 2006
|
6.62
|
2.70
|
||||
|
December
31, 2005
|
7.50
|
6.25
|
||||
|
September
30, 2005
|
8.75
|
6.50
|
||||
|
June
30, 2005
|
9.00
|
7.01
|
||||
|
March
31, 2005
|
10.00
|
6.75
|
|
Pro
Forma – Post Reverse Stock Split
|
||||||||
|
Shareholder
|
Shares
|
Percent
of Class
|
Shares
|
Percent
of Class
|
||||
|
Darrell
R. Wells(1)
|
980,997(2)
|
61.8%
|
3,923
|
69.3%
|
||||
|
Margaret
A. Wells(1)
|
980,997(2)
|
61.8%
|
3,923
|
69.3%
|
||||
|
John
H. Harralson, Jr.
|
12,468
|
*
|
49
|
*
|
||||
|
George
A. Turk
|
0
|
-
|
0
|
-
|
||||
|
Thomas
G. Ward
|
24,169
|
1.5%
|
96
|
1.7%
|
||||
|
Len
E. Schweitzer
|
1,000
|
*
|
4
|
*
|
||||
|
James
T. Helton, III
|
0
|
-
|
0
|
-
|
||||
|
Michael
S. Williams
|
0
|
-
|
0
|
-
|
||||
|
John
D. Cornett
|
4,100
|
*
|
16
|
*
|
||||
|
9
Directors and Executive Officers as a Group
|
1,022,734
|
64.5%
|
4,088
|
72.2%
|
||||
|
* Less
than 1%.
|
||||||||
|
(1)
Margaret A. Wells, a director, is the wife of Darrell
R.
Wells. Under the federal securities laws, a person is presumed
to be the beneficial owner of securities held by members of the
person’s
immediate family sharing the same household. Accordingly, the
shares reported as beneficially owned by Mr. Wells and Mrs. Wells
are the
same shares.
|
||||||||
|
(2)
Includes 250,830 shares held directly by Mr. Wells, 24,303
shares
held directly by Ms. Wells, 66,573 shares held by SMC Retirement
Trust for
the benefit of Mr. Wells, 315,359 shares held by Security Trend
Partners,
115,617 shares held by Exbury Partners, 8,000 shares held by
SMC Advisors,
Inc., 44,000 shares held in an irrevocable trust by Commonwealth
Bank
& Trust as trustee for the benefit of Darrell R. Wells, 89,000
shares
held by the Darrell R. Wells money purchase pension plan, and
67,315
shares held by Commonwealth Bancshares, Inc.
|
||||||||
|
Quarter
Ending
|
Shares
Purchased
|
Price
Range
|
Weighted
Average Price
|
|
June
30, 2007
|
1,900
|
$6.25
- $6.45
|
$6.36
|
|
March
31, 2007
|
0
|
n/a
|
n/a
|
|
December
31, 2006
|
45,356
|
$5.01
- $6.55
|
$6.06
|
|
September
30, 2006
|
25,104
|
$5.56
- $6.50
|
$6.13
|
|
June
30, 2006
|
6,000
|
$6.54
|
$6.54
|
|
March
31, 2006
|
7,157
|
$6.51
- $6.67
|
$6.62
|
|
Purchaser
|
Transaction
Date
|
#
of Shares
|
Price
Per Share
|
Manner
of Purchase
|
|
The
Company
|
June
15
|
400
|
$6.45
|
Open
market
|
|
The
Company
|
June
7
|
600
|
$6.45
|
Open
market
|
|
John
D. Cornett
|
May
29
|
500
|
$6.00
|
Privately
negotiated
|
|
Margaret
A. Wells
|
May
25
|
18,000
|
$6.50
|
Privately
negotiated
|
|
The
Company
|
May
22
|
900
|
$6.25
|
Open
market
|
|
John
D. Cornett
|
May
17
|
3,061
|
$6.00
|
Open
market
|
|
John
D. Cornett
|
May
17
|
75
|
$5.99
|
Open
market
|
|
John
D. Cornett
|
May
16
|
64
|
$5.85
|
Open
market
|
|
|
·
|
states
where the shareholder must send a demand for payment and where
and when
the shareholder must deposit stock
certificates;
|
|
|
·
|
encloses
a form for demanding payment that the dissenter must complete
and return
to the Company;
|
|
|
·
|
informs
holders of uncertificated shares to what extent transfer of the
shares
will be restricted after the payment demand is
received;
|
|
·
|
establishes
the date by which the Company must receive the demand for payment
from the
shareholder; and
|
|
·
|
encloses
a copy of the relevant Kentucky
statutes.
|
|
|
·
|
against
the Company and in favor of dissenters, if the court finds the
Company did
not substantially comply with the Kentucky statutory requirements
for
dissenters' rights; or
|
|
|
·
|
against
either the Company or a dissenter, in favor of any other party,
if the
court finds that the party against whom the fees and expenses are
assessed
acted arbitrarily, vexatiously, or not in good faith with respect
to
dissenters' rights provided by Kentucky
law.
|
|
Independent
financial advisor fees and expenses
|
$20,000
|
||
|
Legal
fees and expenses
|
50,000
|
||
|
Printing,
solicitation, and mailing costs
|
15,000
|
||
|
Miscellaneous
expenses
|
5,000
|
||
|
Total
estimated expenses
|
$90,000
|
|
Three
Months
Ended
3/31/07
|
Year
Ended
12/31/06
|
Year
Ended
12/31/05
|
|
|
RESULTS
OF OPERATIONS
|
|||
|
Premiums
and other considerations
|
$ 5,652,180
|
22,372,967
|
25,548,188
|
|
Net
investment income
|
1,643,660
|
6,675,220
|
6,905,947
|
|
Net
realized investment gains
|
48,622
|
4,041
|
780,265
|
|
Other
income
|
142,843
|
223,276
|
188,507
|
|
Total
revenues
|
7,487,305
|
29,275,504
|
33,422,907
|
|
Policy
benefits and reserve change
|
4,396,109
|
17,296,838
|
20,851,098
|
|
General
expenses
|
1,902,931
|
6,910,230
|
6,646,721
|
|
Interest
expense
|
129,277
|
486,645
|
379,519
|
|
Other
expenses
|
1,239,839
|
5,063,763
|
5,413,804
|
|
Total
benefits and expenses
|
7,668,156
|
29,757,476
|
33,291,142
|
|
Pre-tax
income (loss)
|
(180,851)
|
(481,972)
|
131,765
|
|
Income
tax expense (benefit)
|
0
|
353,932
|
0
|
|
Net
income (loss)
|
$ (180,851)
|
(835,904)
|
131,765
|
|
Net
income (loss) per share
|
$ (0.11)
|
(0.51)
|
0.08
|
|
Ratio
of earnings to fixed charges
|
(0.3989)
|
0.0096
|
1.3472
|
|
Dollar
amount of deficiency
|
180,851
|
481,972
|
0
|
|
FINANCIAL
POSITION
|
|||
|
Cash
and invested assets
|
$125,100,442
|
125,971,398
|
132,627,161
|
|
Other
assets
|
21,573,911
|
21,308,151
|
20,597,636
|
|
Total
assets
|
$146,674,353
|
147,279,549
|
153,224,797
|
|
Policy
liabilities
|
$124,799,417
|
125,671,107
|
128,469,852
|
|
Notes
payable
|
5,330,000
|
5,538,337
|
5,375,003
|
|
Other
liabilities
|
1,975,190
|
1,954,060
|
2,135,938
|
|
Total
liabilities
|
132,104,607
|
133,163,504
|
135,980,793
|
|
Common
stock
|
1,588,011
|
1,588,011
|
1,671,628
|
|
Additional
paid-in capital
|
6,650,197
|
6,650,197
|
7,081,921
|
|
Accumulated
other comprehensive income (loss)
|
(421,472)
|
(1,056,024)
|
720,690
|
|
Retained
earnings
|
6,753,010
|
6,933,861
|
7,769,765
|
|
Total
shareholders’ equity
|
14,569,746
|
14,116,045
|
17,244,004
|
|
Total
liabilities and shareholders’ equity
|
$146,674,353
|
147,279,549
|
153,224,797
|
|
Book
value per common share
|
$9.17
|
8.54
|
10.32
|
|
Three
Months
Ended
3/31/07
|
Year
Ended
12/31/06
|
|||
|
RESULTS
OF OPERATIONS
|
||||
|
Premiums
and other considerations
|
$ 5,652,180
|
22,372,967
|
||
|
Net
investment income
|
1,643,660
|
6,675,220
|
||
|
Net
realized investment gains
|
48,622
|
4,041
|
||
|
Other
income
|
142,843
|
223,276
|
||
|
Total
revenues
|
7,487,305
|
29,275,504
|
||
|
Policy
benefits and reserve change
|
4,396,109
|
17,296,838
|
||
|
General
expenses
|
1,786,503
|
(1)
|
6,608,530
|
(1)
|
|
Interest
expense
|
159,915
|
(2)
|
609,198
|
(2)
|
|
Other
expenses
|
1,239,839
|
5,063,763
|
||
|
Total
benefits and expenses
|
7,582,366
|
29,578,329
|
||
|
Pre-tax
income (loss)
|
(95,061)
|
(302,825)
|
||
|
Income
tax expense (benefit)
|
0
|
353,932
|
||
|
Net
income (loss)
|
$
(95,061)
|
(656,757)
|
||
|
Net
income (loss) per share
|
$ (0.06)
|
(0.44)
|
||
|
Ratio
of earnings to fixed charges
|
0.4056
|
0.50296
|
||
|
Dollar
amount of deficiency
|
95,061
|
302,825
|
||
|
FINANCIAL
POSITION
|
||||
|
Cash
and invested assets
|
$125,276,233
|
126,240,576
|
||
|
Other
assets
|
21,573,911
|
21,308,151
|
||
|
Total
assets
|
$146,850,144
|
147,548,727
|
||
|
Policy
liabilities
|
$124,799,417
|
125,671,107
|
||
|
Notes
payable
|
6,654,900
|
(3)
|
6,863,237
|
(3)
|
|
Other
liabilities
|
1,975,190
|
1,954,060
|
||
|
Total
liabilities
|
133,429,507
|
134,488,404
|
||
|
Common
stock
|
1,417,680
|
(4)
|
1,417,680
|
(4)
|
|
Additional
paid-in capital
|
5,585,629
|
(4)
|
5,585,629
|
(4)
|
|
Accumulated
other comprehensive income (loss)
|
(421,472)
|
(1,056,024)
|
||
|
Retained
earnings
|
6,838,800
|
7,113,038
|
||
|
Total
shareholders’ equity
|
13,420,637
|
13,060,323
|
||
|
Total
liabilities and shareholders’ equity
|
$146,850,144
|
147,548,727
|
||
|
Book
value per common share
|
$2,262.50
|
2,202.50
|
|
|
(1)
|
Includes
estimated expense savings resulting from going
private.
|
|
|
(2)
|
Includes
estimated interest on amount borrowed to finance the Reverse Stock
Split.
|
|
|
(3)
|
Includes
estimated amount borrowed to finance the Reverse Stock
Split.
|
|
|
(4)
|
Includes
retirement of fractional shares purchased in connection with
the Reverse
Stock Split.
|
|
Shareholder
Proposals for the 2008 Annual
Meeting. Shareholders are entitled to present
proposals for action at a forthcoming meeting if they comply
with
applicable rules of the Securities and Exchange Commission and
the
Company’s bylaws. If you would like for the Company to consider
including a proposal in the Board of Directors’ proxy statement and form
of proxy for presentation at the 2008 Annual Meeting of Shareholders,
you
must provide your notice to that effect, received in the Company’s offices
not later than January 14, 2008. If you intend to submit a
proposal at the 2008 Annual Meeting of Shareholders but do not
intend to
include it in the Board of Directors’ proxy statement and form of proxy
for that meeting, you must also provide notice to the Company,
also
received not later than January 14, 2008. The notice in either
case should include information regarding the business desired
to be
brought before the meeting and the reasons for conducting such
business at
the meeting, your identity and share ownership (both direct and
beneficial), and any interest you have in the proposal, as well
as any
additional information required by applicable laws. You should
send your notice described above, or a request for a copy of
the relevant
bylaws, to the Secretary of the Company at 12910 Shelbyville
Road, Suite
300, Louisville, Kentucky 40243.
|
|
|
·
|
its
Annual Report on Form 10-K for the year ended December 31,
2006;
|
|
|
·
|
its
Current Report, as amended,
on Form 8-K/A, as filed April 17, 2007;
and
|
|
|
·
|
its
Quarterly Report on Form 10-Q for the quarter ended March 31,
2007;
|
|
____________,
2007
|
|||
|
|
CITIZENS FINANCIAL CORPORATION | ||
| By: | |||
| Name: | |||
| Title: | |||
|
(1)
|
"Corporation"
means the issuer of the shares held by a dissenter, except that
in the
case of a merger where the issuing corporation is not the surviving
corporation, then, after consummation of the merger, "corporation"
shall
mean the surviving corporation.
|
| (2) |
"Dissenter"
means a shareholder who is entitled to dissent from corporate
action under
KRS 271B.13-020 and who exercises that right when and in the manner
required by KRS 271B.13-200 to
271B.13-280.
|
|
(3)
|
"Fair
value," with respect to a dissenter's shares, means the value
of the
shares immediately before the effectuation of the corporate action
to
which the dissenter objects, excluding any appreciation or depreciation
in
anticipation of the corporate action unless exclusion would be
inequitable. In any transaction subject to the requirements of
KRS
271B.12-210 or exempted by KRS 271B.12-220(2), "fair value" shall
be at
least an amount required to be paid under KRS 271B.12-220(2)
in order to
be exempt from the requirements of KRS
271B.12-210.
|
|
(4)
|
"Interest"
means interest from the effective date of the corporate action
until the
date of payment, at the average rate currently paid by the corporation
on
its principal bank loans or, if none, at a rate that is fair
and equitable
under all the circumstances.
|
|
(5)
|
"Record
shareholder" means the person in whose name shares are registered
in the
records of a corporation or the beneficial owner of shares to
the extent
of the rights granted by a nominee certificate on file with a
corporation.
|
|
(6)
|
"Beneficial
shareholder" means the person who is a beneficial owner of shares
held in
a voting trust or by a nominee as the record
shareholder.
|
|
(7)
|
"Shareholder"
means the record shareholder or the beneficial
shareholder.
|
|
(1)
|
A
shareholder shall be entitled to dissent from, and obtain payment
of the
fair value of his shares in the event of, any of the following
corporate
actions:
|
|
(a)
|
Consummation
of a plan of merger to which the corporation is a
party:
|
|
1.
|
If
shareholder approval is required for the merger by KRS 271B.11-030
or the
articles of incorporation and the shareholder is entitled to
vote on the
merger; or
|
|
2.
|
If
the corporation is a subsidiary that is merged with its parent
under KRS
271B.11-040;
|
|
(b)
|
Consummation
of a plan of share exchange to which the corporation is a party
as the
corporation whose shares will be acquired, if the shareholder
is entitled
to vote on the plan;
|
|
(c)
|
Consummation
of a sale or exchange of all, or substantially all, of the property
of the
corporation other than in the usual and regular course of business,
if the
shareholder is entitled to vote on the sale or exchange, including
a sale
in dissolution, but not including a sale pursuant to court order
or a sale
for cash pursuant to a plan by which all or substantially all
of the net
proceeds of the sale will be distributed to the shareholders
within one
(1) year after the date of sale;
|
|
(d)
|
An
amendment of the articles of incorporation that materially
and adversely
affects rights in respect of a dissenter's shares because
it:
|
|
1.
|
Alters
or abolishes a preferential right of the shares to a distribution
or in
dissolution;
|
|
2.
|
Creates,
alters, or abolishes a right in respect of redemption, including
a
provision respecting a sinking fund for the redemption or repurchase,
of
the shares;
|
|
3.
|
Excludes
or limits the right of the shares to vote on any matter other
than a
limitation by dilution through issuance of shares or other
securities with
similar voting rights; or
|
|
4.
|
Reduces
the number of shares owned by the shareholder to a fraction
of a share if
the fractional share so created is to be acquired for cash
under KRS
271B.6-040;
|
|
(e)
|
Any
transaction subject to the requirements of KRS 271B.12-210
or exempted by
KRS 271B.12-220(2); or
|
|
(f)
|
Any
corporate action taken pursuant to a shareholder vote to the
extent the
articles of incorporation, bylaws, or a resolution of the board
of
directors provides that voting or nonvoting shareholders are
entitled to
dissent and obtain payment for their
shares.
|
|
(2)
|
A
shareholder entitled to dissent and obtain payment for his
shares under
this chapter shall not challenge the corporate action creating
his
entitlement unless the action is unlawful or fraudulent with
respect to
the shareholder or the corporation.
|
|
(1)
|
A
record shareholder may assert dissenters' rights as to fewer
than all the
shares registered in his name only if he shall dissent with respect
to all
shares beneficially owned by any one (1) person and notify the
corporation
in writing of the name and address of each person on whose behalf
he
asserts dissenters' rights. The rights of a partial dissenter
under this
subsection shall be determined as if the shares as to which he
dissents
and his other shares were registered in the names of different
shareholders.
|
|
(2)
|
A
beneficial shareholder may assert dissenters' rights as to shares
held on
his behalf only if:
|
|
(a)
|
He
submits to the corporation the record shareholder's written consent
to the
dissent not later than the time the beneficial shareholder asserts
dissenters' rights; and
|
|
(b)
|
He
does so with respect to all shares of which he is the beneficial
shareholder or over which he has power to direct the
vote.
|
|
(1)
|
If
proposed corporate action creating dissenters' rights under KRS
271B.13-020 is submitted to a vote at a shareholders' meeting,
the meeting
notice must state that shareholders are or may be entitled to
assert
dissenters' rights under this subtitle and the corporation shall
undertake
to provide a copy of this subtitle to any shareholder entitled
to vote at
the shareholders' meeting upon request of that
shareholder.
|
|
(2)
|
If
corporate action creating dissenters' rights under KRS 271B.13-020
is
taken without a vote of shareholders, the corporation shall notify
in
writing all shareholders entitled to assert dissenters' rights
that the
action was taken and send them the dissenters' notice described
in KRS
271B.13-220.
|
|
(1)
|
If
proposed corporate action creating dissenters' rights under KRS
271B.13-020 is submitted to a vote at a shareholders' meeting,
a
shareholder who wishes to assert dissenters'
rights:
|
|
(a)
|
Shall
deliver to the corporation before the vote is taken written notice
of his
intent to demand payment for his shares if the proposed action
is
effectuated; and
|
|
(b)
|
Shall
not vote his shares in favor of the proposed
action.
|
|
(2)
|
A
shareholder who does not satisfy the requirements of subsection
(1) of
this section shall not be entitled to payment for his shares
under this
chapter.
|
|
(1)
|
If
proposed corporate action creating dissenters' rights under KRS
271B.13-020 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders
who
satisfied the requirements of KRS
271B.13-210.
|
|
(2)
|
The
dissenters' notice shall be sent no later than ten (10) days
after the
date the proposed corporate action was authorized by the shareholders,
or,
if no shareholder authorization was obtained, by the board of
directors,
and shall:
|
|
(a)
|
State
where the payment demand must be sent and where and when certificates
for
certificated shares must be
deposited;
|
|
(b)
|
Inform
holders of uncertificated shares to what extent transfer of the
shares
will be restricted after the payment demand is
received;
|
|
(c)
|
Supply
a form for demanding payment that includes the date of the first
announcement to news media or to shareholders of the terms of
the proposed
corporate action and requires that the person asserting dissenters'
rights
certify whether or not he acquired beneficial ownership of the
shares
before that date;
|
|
(d)
|
Set
a date by which the corporation must receive the payment demand,
which
date may not be fewer than thirty (30), nor more than sixty (60)
days
after the date the notice provided in subsection (1) of this
section is
delivered; and
|
|
(e)
|
Be
accompanied by a copy of this
subtitle.
|
|
(1)
|
A
shareholder who is sent a dissenters' notice described in KRS
271B.13-220
shall demand payment, certify whether he acquired beneficial
ownership of
the shares before the date required to be set forth in the dissenters'
notice pursuant to subsection (2)(c) of KRS 271B.13-220, and
deposit his
certificates in accordance with the terms of the
notice.
|
|
(2)
|
The
shareholder who demands payment and deposits his share certificates under
subsection (1) of this section shall retain all other rights
of a
shareholder until these rights are canceled or modified by the
taking of
the proposed corporate action.
|
|
(3)
|
A
shareholder who does not demand payment or deposit his share
certificates
where required, each by the date set in the dissenters' notice,
shall not
be entitled to payment for his shares under this
subtitle.
|
|
(1)
|
The
corporation may restrict the transfer of uncertificated shares
from the
date the demand for their payment is received until the proposed
corporate
action is taken or the restrictions released under KRS
271B.13-260.
|
|
(2)
|
The
person for whom dissenters' rights are asserted as to uncertificated
shares shall retain all other rights of a shareholder until these
rights
are canceled or modified by the taking of the proposed corporate
action.
|
|
(1)
|
Except
as provided in KRS 271B.13-270, as soon as the proposed corporate
action
is taken, or upon receipt of a payment demand, the corporation
shall pay
each dissenter who complied with
KRS
|
|
|
271B.13-230
the amount the corporation estimates to be the fair value of
his shares,
plus accrued interest.
|
|
(2)
|
The
payment shall be accompanied by:
|
|
(a)
|
The
corporation's balance sheet as of the end of a fiscal year ending
not more
than sixteen (16) months before the date of payment, an income
statement
for that year, a statement of changes in shareholders' equity
for that
year, and the latest available interim financial statements,
if
any;
|
|
(b)
|
A
statement of the corporation's estimate of the fair value of
the
shares;
|
|
(c)
|
An
explanation of how the interest was calculated;
and
|
|
(d)
|
A
statement of the dissenter's right to demand payment under KRS
271B.13-280.
|
|
(1)
|
If
the corporation does not take the proposed action within sixty
(60) days
after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates
and
release the transfer restrictions imposed on uncertificated
shares.
|
|
(2)
|
If
after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it shall
send a
new dissenters' notice under KRS 271B.13-220 and repeat the payment
demand
procedure.
|
|
(1)
|
A
corporation may elect to withhold payment required by KRS 271B.13-250
from
a dissenter unless he was the beneficial owner of the shares
before the
date set forth in the dissenters' notice as the date of the first
announcement to news media or to shareholders of the terms of
the proposed
corporate action.
|
|
(2)
|
To
the extent the corporation elects to withhold payment under subsection
(1)
of this section, after taking the proposed corporate action,
it shall
estimate the fair value of the shares, plus accrued interest,
and shall
pay this amount to each dissenter who agrees to accept it in
full
satisfaction of his demand. The corporation shall send with its
offer a
statement of its estimate of the fair value of the shares, an
explanation
of how the interest was calculated, and a statement of the dissenter's
right to demand payment under KRS
271B.13-280.
|
|
(1)
|
A
dissenter may notify the corporation in writing of his own estimate
of the
fair value of his shares and amount of interest due, and demand
payment of
his estimate (less any payment under KRS 271B.13-250), or reject
the
corporation's offer under KRS 271B.13-270 and demand payment
of the fair
value of his shares and interest due,
if:
|
|
(a)
|
The
dissenter believes that the amount paid under KRS 271B.13-250
or offered
under KRS 271B.13-270 is less than the fair value of his shares
or that
the interest due is incorrectly
calculated;
|
|
(b)
|
The
corporation fails to make payment under KRS 271B.13-250 within
sixty (60)
days after the date set for demanding payment;
or
|
|
(c)
|
The
corporation, having failed to take the proposed action, does
not return
the deposited certificates or release the transfer restrictions
imposed on
uncertificated shares within sixty (60) days after the date set
for
demanding payment.
|
|
(2)
|
A
dissenter waives his right to demand payment under this section
unless he
shall notify the corporation of his demand in writing under subsection
(1)
of this section within thirty (30) days after the corporation
made or
offered payment for his shares.
|
|
(1)
|
If
a demand for payment under KRS 271B.13-280 remains unsettled,
the
corporation shall commence a proceeding within sixty (60) days
after
receiving the payment demand and petition the court to determine
the fair
value of the shares and accrued interest. If the corporation
does not
commence the proceeding within the sixty (60) day period, it
shall pay
each dissenter whose demand remains unsettled the amount
demanded.
|
|
(2)
|
The
corporation shall commence the proceeding in the Circuit Court
of the
county where a corporation's principal office (or, if none in
this state,
its registered office) is located. If the corporation is a foreign
corporation without a registered office in this state, it shall
commence
the proceeding in the county in this state where the registered
office of
the domestic corporation merged with or whose shares were acquired
by the
foreign corporation was located.
|
|
(3)
|
The
corporation shall make all dissenters (whether or not residents
of this
state) whose demands remain unsettled parties to the proceeding
as in an
action against their shares and all parties shall be served with
a copy of
the petition. Nonresidents may be served by registered or certified
mail
or by publication as provided by
law.
|
|
(4)
|
The
jurisdiction of the court in which the proceeding is commenced
under
subsection (2) of this section shall be plenary and exclusive.
The court
may appoint one (1) or more persons as appraisers to receive
evidence and
recommend decision on the question of fair value. The appraisers
have the
powers described in the order appointing them, or in any amendment
to it.
The dissenters shall be entitled to the same discovery rights
as parties
in other civil proceedings.
|
|
(5)
|
Each
dissenter made a party to the proceeding shall be entitled to
judgment:
|
|
(a)
|
For
the amount, if any, by which the court finds the fair value of
his shares,
plus interest, exceeds the amount paid by the corporation;
or
|
|
(b)
|
For
the fair value, plus accrued interest, of his after-acquired
shares for
which the corporation elected to withhold payment under KRS
271B.13-270.
|
|
(1)
|
The
court in an appraisal proceeding commenced under KRS 271B.13-300
shall
determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court.
The court
shall assess the costs against the corporation, except that the
court may
assess costs against all or some of the dissenters, in amounts
the court
finds equitable, to the extent the court finds the dissenters
acted
arbitrarily, vexatiously, or not in good faith in demanding payment
under
KRS 271B.13-280.
|
|
(2)
|
The
court may also assess the fees and expenses of counsel and experts
for the
respective parties, in amounts the court finds
equitable:
|
|
(a)
|
Against
the corporation and in favor of any or all dissenters, if the
court finds
the corporation did not substantially comply with the requirements
of KRS
271B.13-200 to 271B.13-280; or
|
|
(b)
|
Against
either the corporation or a dissenter, in favor of any other
party, if the
court finds that the party against whom the fees and expenses
are assessed
acted arbitrarily, vexatiously, or not in good faith with respect
to the
rights provided by this subtitle.
|
|
(3)
|
If
the court finds that the services of counsel for any dissenter
were of
substantial benefit to other dissenters similarly situated, and
that the
fees for those services should not be assessed against the corporation,
the court may award to these counsel reasonable fees to be paid
out of the
amounts awarded the dissenters who were
benefited.
|
|
(i)
|
|
certain
publicly available financial statements and other historical financial
information of Citizens Financial that we deemed
relevant;
|
|
(ii)
|
2007
projected earnings, budgets and estimates for Citizens Financial
prepared
by management of Citizens
Financial;
|
|
(iii)
|
the
outlook with regard to the insurance industry, both locally and
on a
national scale;
|
|
(iv)
|
a
comparison of certain financial information for Citizens Financial
with
similar publicly available information for certain other life insurance
companies;
|
|
(v)
|
the
current market environment generally and the insurance environment
in
particular;
|
|
(vi)
|
such
other information, financial studies, analyses and investigations,
and
financial, economic and market criteria as we considered
relevant;
|
|
(vii)
|
the
nature and terms of certain other “going private” transactions that it
believed to be relevant;
|
|
(viii)
|
the
valuation of the voting shares of common stock Citizens Financial
prepared
by Burke Capital; and
|
|
(ix)
|
recent
trading activity of Citizens
Financial
|
|
PROXY
|
|
|
1.
|
REVERSE
STOCK SPLIT
|
|
Date
|
|
||
|
PLEASE
SIGN EXACTLY AS
NAME
APPEARS BELOW
|
|||
|
Signature
|
|||
|
Signature
|
|||
| When shares are held by joint tenants both should sign. When signing as attorney, administrator, trustee, or guardian please give full title as such. If a corporation, please sign in full corporate name by president or other authorized officer. If a partnership, please sign in partnership name by authorized person. | |||
|
PLEASE
DATE, SIGN, AND RETURN THIS PROXY IN THE ENCLOSED ENVELOPE
PROMPTLY. NO POSTAGE IS NECESSARY IF MAILED IN THE UNITED
STATES.
|
|||